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If you're thinking of switching mortgage deals or making a large overpayment on your loan, you may come across something called an Early Repayment Charge (ERC). These charges can catch many homeowners off guard and cost a significant amount of money—unless you know what to look out for.
In this post, we’ll break down what ERCs are, when they apply, how they’re calculated, and—most importantly—how to avoid them where possible.
What is an Early Repayment Charge?
An Early Repayment Charge (ERC) is a fee your mortgage lender may charge if you:
- Pay off your mortgage in full before the end of your deal term
- Remortgage to a new lender before your deal ends
- Overpay more than your allowed limit in a year
ERCs are designed to compensate lenders for the interest they lose when a mortgage is paid off early—especially during fixed-rate or tracker periods where you've agreed to borrow at a specific rate for a set number of years.
When Do ERCs Apply?
ERCs usually apply during the initial deal period of your mortgage—commonly a 2-, 3-, or 5-year fixed or tracker term. If you move to a new lender, switch deals, or repay your loan early during this time, your lender may charge you an ERC.
Always check your mortgage documents or speak to your broker to confirm when your current deal ends and whether ERCs apply.
How Are ERCs Calculated?
ERCs are typically calculated as a percentage of the outstanding mortgage balance. The exact percentage depends on your lender and how early in your deal you exit.
Here’s an example:
If you owe £200,000 and your ERC is 2%, you'd pay a £4,000 fee.
Some lenders use a sliding scale—meaning the percentage decreases the further into your deal you are.
Why Do Lenders Charge ERCs?
When you take out a fixed or tracker mortgage, the lender plans their finances based on you sticking with that deal for a certain period. If you leave early, the lender may lose money—ERCs are their way of recovering that cost.
Can You Avoid Paying an ERC?
Yes—in some cases. Here’s how:
✅ Time your switch carefully. Wait until your deal ends to remortgage or pay off your loan. Most lenders allow you to start a new application a few months early (commonly 3–6 months) to avoid overlap.
✅ Use your annual overpayment allowance. Most lenders let you overpay up to 10% of your balance each year without penalty.
✅ Port your mortgage. If you’re moving house, some lenders let you port your deal to the new property and avoid ERCs (more on that in our porting blog!).
✅ Speak to a broker. We’ll help you weigh up whether it’s worth paying the ERC—or if a better deal could save you more in the long run.
Final Thoughts: Always Check Before You Act
ERCs aren’t always avoidable—but understanding them can help you plan better, save money, and avoid unpleasant surprises.
Whether you're thinking of moving, remortgaging, or overpaying, make sure you know where you stand. And remember, the right mortgage advice can save you thousands.
📲 Need help working out if an ERC applies—or if paying it makes financial sense?
Get in touch with us today for straightforward, no-obligation advice.